Procurement terms: B

Refer to Selling, Back Door

In supply chain terms when a customer order cannot be immediately fulfilled from stock, the customer requirement may be placed on ‘back order’. This implies that a replenishment order will be raised on the next tier of the supply chain and, when sufficient materials are available, the outstanding ordered amount will be forwarded to the original customer.

When a truck transports a load from A to B, the trucking company will seek a commercial load for the return journey from B to A. This is known as the backhaul and underpins competitive pricing. The term is also used in IT to describe the transmission of data from point to point, for example from undersea cables to exchanges.

Schedule of customer orders that have been received and processed, but not yet shipped or fulfilled. See also Back Order.

Refer to Integration, Backward

Refer to Best and Final Offer

When companies publish their financial accounts, one of the most valuable sources of information about the company’s status is the balance sheet or statement of financial position. The report details the company’s assets, liabilities and equity, and is a snapshot of the company's financial condition at a particular time. Ratio analysis is often applied to the information on a balance sheet, for example measures of solvency. Published balance sheets are one source of information about a company’s performance, but as they are prepared in arrears, and for particular audiences, they should not be the only source of information. See also Ratio Analysis. Finance e-Learning courses are available at Academy of Procurement.

The concept of the balanced scorecard emerged in the early 1990s and advanced the view that simple financial or economic measures of organisational performance were inadequate to measure an organisation’s success. Four perspectives were originally proposed, each of which being a separate dimension against which an organisation might measure its ‘performance’. The perspectives were financial, customer, internal business processes and learning and growth. The diversity of perspectives reflects the fact that an organisation’s success in realising its strategy cannot be measured solely in terms of shareholders or financial measures of performance. The ‘balance’ refers to the measurement of an organisation’s success from a number of other perspectives, including staff and customers. See also Corporate Social Responsibility.

A machine-readable pattern of lines or symbols that contains data about the object to which it relates. Often used in conjunction with optical scanners in order to automatically capture or relate data.

Bargaining refers to the process of negotiating terms, conditions, and prices between a buyer and a supplier with the goal of reaching a mutually beneficial agreement.

Barter is a form of trade where money is not used, and instead goods are exchanged. The parties agree what quantity of good B is needed in order to ‘pay’ for a given quantity of good A. Barter is a form of counter trade. See also Consideration and Countertrade.

The current situation, to which future performance can be compared. When considering outsourcing a function it is important to ‘baseline’ both the current true costs to provide those services and also to establish the actual service levels delivered. This baseline of the ‘status quo’ can help in making judgements as to whether outsourcing will improve service levels, reduce cost, or both. The research associated with base lining the current situation can ensure that managers have a fuller understanding of real costs and actual service levels, which can then be used to benchmark against similar organisations, or to act as a comparator to evaluate commercial offers from providers bidding to provide the service externally. See also Outsourcing.

A quantity of a product processed at the same time and under the same conditions, each item being identifiable as identical for classification purposes. Batch production may involve setup processes for each batch and downtime in between the production of successive batches. The alternative is continuous production, in which there is no down time and the same output is produced continuously without interruption. See also Lot Size.

Refer to Best Alternative to a Negotiated Offer

The battle of the forms describes the situation that results when parties involved in a commercial transaction exchange documentation with differing terms and conditions. In the event of a dispute between the parties, the courts have to decide what was agreed between the parties and, in the absence of a contract, the courts in some jurisdictions will seek the last unchallenged counter offer. In practice this often favours the supplier, as the quotation, order acknowledgement, proof of delivery and invoice all succeed buyer communications. See also Offer.

Refer to Business as Usual

Benchmarking in procurement terms can have two specific applications. The first type, price benchmarking involves the determination of whether commercial terms currently offered or enjoyed represent value when compared with terms enjoyed by other customers for a similar category. Price benchmarking is most easily undertaken for homogenous and simple goods, but even so needs to consider other terms of the arrangement such as quantities ordered, frequency of orders, payment terms etc. The second type of benchmarking, performance benchmarking, also involves comparisons of key metrics against other entities, but typically addresses dimensions of organisational performance rather than price paid. Examples might include the cost of the procurement function as a percentage of the total spend, the cost of raising and paying a purchase order, the quality of the strategic sourcing process, the quality of staff development processes etc. See also Best in Class and Measurement.

Benefits are positive outcomes from the procurement process apart from financial savings. There is some consensus about categorising different types of savings, such as cash-releasing savings and cost avoidance, but there is little agreement on defining or measuring other positive outcomes from procurement. Examples of benefits other than financial savings include reduction in risk, reduced time to market and preferential access to supply. See also Savings and Value Adds.

After the award of a contract, all of the benefits are potential benefits until harvested or realised during the agreement. As part of post-award contract management the contract or category manager may implement a plan to ensure that the proposed benefits in the business case are realised. This may involve communication with stakeholders or assistance in migration to the new agreement’s terms and conditions. See also Savings. Total Cost of Ownership & Benefits Realisation training is available at Academy of Procurement.

The concept of the best alternative to a negotiated agreement [BATNA] describes the option for a negotiator if agreement cannot be reached. It proposes that a negotiator who must reach a deal is in a weaker position than a negotiator who has an alternative option. See also Negotiation.

Best and final offer [BAFO] refers to a multi-stage procurement process, in which written offers from bidders are subject to clarification and/or negotiation, and then the bidder[s] are invited to submit their final offer, which will not be subject to subsequent negotiation. Such processes may be appropriate when the scope of work is not well defined, the bidders’ offers are substantially different and/or the procurement process represents an opportunity for buyer and bidders to develop their understanding of potential solutions. See also RFx.

The phrase ‘best in class’ is typically used as part of benchmarking to describe a standard of performance associated with the best performing organisations or best practice in a relevant sector or business. The identification of what is best in class performance and which organisations represent best practice requires access to third parties such as consultancies or benchmarking intermediaries with access to relevant indicators and multiple datasets. See also Benchmarking.

Best practice is associated with seeking to identify the best processes that exist, usually in other organisations, which it is hoped, if adopted, will lead to better outcomes. For example, a small organisation may not have the economies of scale to achieve the same commercial outcomes in acquiring a category as a much larger enterprise, but they may be able to emulate the processes that the larger organisation uses and, in so doing, optimise their own outcomes. See also Benchmarking.

Best value is a trade-off between price and performance that provides the greatest overall benefit under the specified selection criteria. The term is closely associated with value for money. Seeking best value involves considering the quality of the solution proposed, the total life costs, service and support issues, sustainability etc. In higher value procurement projects, the bid evaluation criteria and their respective weightings will give expression to the perception of what represents the best value. See also Value for Money.

The word ‘bid’ is used generically to describe any proposals and may be used both to describe the buyer’s issue of the ‘bid documents’ to potential bidders and, the actual submission of bids by the respondents. The term encompasses quotes, proposals, tenders and auction offers. See also Offer.

Refer to Evaluation, Tender

Bid rigging occurs when suppliers communicate with each other before lodging their bids and agree amongst themselves who will be the successful bidder and at what price. This practice is one type of collusive tendering and may be discouraged by introducing new bidders and, regularly benchmarking offers against industry standards. See also Collusion.

A form of collusion in which a relatively stable set of bidders for contracts which are routinely awarded to the lowest bidder collude between themselves as to which of the bidders should win which contract. For example, bidder A may submit the lowest bid for contracts let over a particular time period or for a particular scope of work. The other bidders will deliberately inflate their bids on the express understanding that their turn will come. On the expiry of their turn, bidder A will inflate their subsequent bid in order for it to become bidder B’s turn to win the contracts. Bid rotation relies upon a relatively stable community of bidders, regular tenders and predictable behaviour by the buyer. See also Collusion.

A form of collusion in which a relatively stable set of bidders for contracts which are routinely tendered agree between themselves which contracts each participant will bid for and, more importantly, which contracts they will decline to bid for. For example, a buyer may issue tenders to three bidders, only to find that bidders B and C decline to tender. On a subsequent cycle, bidders A and C will decline to tender, and so on. This is a relatively conspicuous form of collusion and it is more likely that bidders A and C would submit a bid, but on such poor terms that only bidder B’s offer would be acceptable to the buyer. See also Collusion.

A participant in a competitive market event whose offer is not accepted for reasons of price, quality, service or some other factor. Typically, unsuccessful bidders seek feedback in the form of a debriefing, in order to understand how they can be more competitive in future.

A common procurement practice designed to secure value for money by inviting a number of suppliers to submit offers. Most procurement governance schemes allow non-competitive bids for lower value acquisitions, but require competitive tension to demonstrate value for higher value acquisitions. In the public sector competitive bidding allows transparency, equality of opportunity and the ability to demonstrate that the outcomes represent best value. See also Tender.

In two-stage bidding the first stage of bidding invites tenderers to submit technical solutions or provide information about their proposed offering. In the light of the responses, the buyer shortlists from amongst the respondents and then issues another set of offer documents, which typically invite the shortlisted respondents to submit commercial offers. See also Request for Information.

Refer to Contract, Bilateral

A Bill of Lading is a legal document of transfer and is normally issued by a carrier to a shipper confirming that goods have been received on board for shipping to a named place of delivery and for a specific recipient.

A listing of all the materials required in order to produce a finished product. Direct materials are typically goods which are consumed or incorporated in the production process and, consequently, would appear on a bill of materials, as a complete inventory of which components were needed and in what quantity. See also Materials Requirement Planning.

A blanket order is an order raised with a supplier for a specific range or category against which individual requirements will be drawn down over a period. Typically, the overall quantities are not known precisely at the start of the arrangement, so a commitment is given to fix the terms of the agreement for a specified period, for example, six months or 12 months.

A blanket release is a specific order raised against an overarching blanket order. It is usually for a specified quantity or schedule of quantities.

Refer to Clause, Boilerplate

A bond is a written agreement set up by participants in a relationship in order to guarantee performance, or to provide security against default or non-performance. Examples include bid bonds, performance bonds and completion bonds. In each case, a sum of money is deposited as surety that each party will fulfil their obligations, as the bond may be forfeited in defined circumstances. See also Performance Bonds.

Refer to Warehouse, Bonded

Refer to Contract, BOOM

Refer to Contract, BOOT

A bottleneck is a limiting factor in a supply chain or a process that constrains performance of the overall system. See also Portfolio Analysis.

Refer to Business Process Outsourcing

When parties have entered into a legally binding agreement and one party fails to fulfil their obligations under the terms of that agreement, they are said to be in breach of the agreement. The significance of a breach depends upon the relative importance of the term that has been breached. For example, breach of a warranty (an assurance given by one party that specific promises will be honoured) may give the right to damages, but will not normally give the right to termination. Breach of a condition will give the other party the right to terminate the agreement. Distinguishing whether the contractual term is a condition or a warranty will depend upon the nature of the agreement. See also Contract and Terms and Conditions.

Break bulk refers to the separation of a consolidated load into smaller consignments for delivery to the ultimate customer.

A broker is an intermediary in a transaction between buyer and seller. Whereas an agent normally acts on behalf of one of the parties, the broker is usually independent. Brokers are common in markets that require particular expertise and where small buyers wish to leverage the scale of an intermediary. Examples might include an insurance broker, a stockbroker or a shipbroker.

A budget represents an organisation’s plan expressed in monetary terms, usually addressing the allocation of resources such as people, assets and expenses. It is often used as a measure of organisational performance control in order to help ensure that the organisation realises its financial goals.

This is an approach used in accountancy in which, instead of developing a new budget based on historical budgets through a percentage increase or decrease, each line in the budget has to be justified from a zero base. This reflects the fact that budgets can sometimes reflect historical priorities rather than current priorities. The aim is to force real thinking about what is or is not needed in future, regardless of past processes or expenses.

Refer to Stock, Buffer

Bulk freight refers to materials that are not in unitised containers such as wheat, coal and petroleum. See also Container.

Also known as the Forrester Effect, the term applies to the responsiveness of supply chains to a change in demand. As an example, supposing there is a fire in a factory bottling cola. Retailers hear of the fire and, fearing an interruption to supply, double their orders with their distributors. The distributors experience an increase in orders and, fearing a stock-out, increase their orders on the bottler, adding a ‘just in case’ component to the retailer’s original orders. The bottler is inundated with orders and can only supply a proportion of the orders, so puts the distributors on allocation. In panic, the distributors raise fresh orders on the bottler and encourage the retailers to do the same. The demand amplification causes the bottler to experience a distorted perception of actual market demand, as retailer sales and consumption of cola may well be unchanged. See also Agility, Forrester Effect and Supply Chain.

Business as usual [BAU] describes the steady state of an organisation without the application of a deliberate change program. For organisations attempting organisational transformation, a prelude to change is to better understand how business as usual works in practice.

A business case is a structured evaluation of a proposed decision, providing a transparent decision-making trail and evaluating the merits of the choices considered. Typically business cases are submitted for review to senior managers and seek to distil complex issues and to provide rational choices between competing alternatives. As an example, business cases are often prepared to consider the investment of money in equipment or new projects and would include a statement of the proposed goals, exploration of alternative options, some form of cost benefit analysis, a risk analysis, recommendations for the preferred options and, an implementation plan. The procurement contribution to business cases may include validating the ‘do or contract’ decision, ensuring that the proposed benefits are realistic, aligning any contractual arrangements so that risk is shared with the contractors, assessing the commercial risks, ensuring that the total cost of the project is costed, not just the initial purchase price, and of course negotiating terms with any contractor in order to try to maximise the return on investment. See also Return on Investment. Project Management e-Learning courses are available at Academy of Procurement.

The last, and optional, level of five classes in the United Nations Standard Products and Services Code [UNSPSC]. The other four levels of classification are Segment, Family, Class and Commodity. The UNSPSC for any given item is therefore composed of four or five two-digit identifiers, which together universally categorise items. See also UNSPSC.

Business process outsourcing [BPO] is a phrase used to describe the outsourcing of a specific function or range of services. Examples might include customer contact centres, information technology support services and procurement services. The strategic logic is that organisations have some core capabilities by which they enjoy competitive advantage over their competitors, but may undertake some other activities at which they are relatively inefficient. Where third parties can provide these functions to the same or a higher standard at a lower cost, it can make strategic sense to outsource the provision of these services to specialists. See also Competence and Outsourcing.

This is a form of countertrade where the principal supplies equipment to the customer at little or no charge and the customer ‘pays’ for the equipment by supplying the principal with the output of the equipment. An example might be a jeans company that buys and supplies knitting equipment to a supplier at no charge. The supplier uses the equipment to manufacture jeans that are then supplied back to the jeans company that on-sells the jeans. The jeans company may buy the jeans at a lower cost than if the supplier had bought the equipment themselves. This involves both barter and technology transfer. See also Countertrade.

The label ‘buyer’ is used generically to describe the organisational role of someone whose job involves acquiring goods and/or services on behalf of others. The term is commonly used to describe retail buyers, whose role is often broad with an emphasis on the entrepreneurial ability to see opportunities and specify what is purchased for subsequent resale. Organisational buyers typically have job titles such as purchasing, procurement, sourcing or category manager and typically acquire goods and services for consumption within their own organisation, not for resale.

A buyers market occurs when there is an excess of supply over demand and buyers have many alternative sources of supply for goods and/or services. Supply-demand imbalances occur for a variety of reasons, including economic downturn, technological development and the introduction of free trade, any or all of which can cause markets to become a buyers’ markets, at least in the short term. In the longer term, suppliers faced with dwindling margins exit the market and a balance between supply and demand is restored.